Feature story from Germany: Project Portfolio Management and Complexity Reduction  

Many IT departments primarily organize changes in the form of projects — and for good reason. In theory, projects allow these changes to be created in a targeted, measurable manner and within a defined timeframe.

The ability to successfully complete projects is a key organizational skill for IT departments. Without this capability, they either fail to achieve their goals, achieve them only partially, or achieve them too late.

In an accelerating world, the demands placed on IT departments are increasing. Faster innovation cycles lead to growing expectations from users toward their IT departments. Even without this effect, technical interdependencies continuously evolve. At the same time, regulatory requirements are expanding. All these factors increase the number of projects and often the scope of individual projects.

IT departments must address this complexity to continue achieving their objectives. Thus, the ability to manage a project portfolio is becoming increasingly important, complementing traditional project management.

The IT department of the Bundesrechnungshof also faces this challenge. This article presents parts of their approach, based on their experience.

Demands, Projects und Project Portfolio

To better understand how projects are initiated and completed, it is helpful to imagine the idealized lifecycle of a project. A project is initially based on a demand identified from the perspective of the users. Without such a demand, it becomes difficult to justify the allocation of time and resources.

We translate this demand into the description of a project. Subsequently, we implement this project and bring it to an operational status. The following graphic illustrates this lifecycle:

It is now reasonable to understand a project not merely as an abstract block but as a mandate to realize several so-called deliverables. Deliverables represent requirements to be implemented from an organizational, technical, and compliance perspective. Each project is therefore associated with specific deliverables. Examples of deliverables include rolling out new software, providing new hardware for data centers, delivering a new data product, a dashboard, a consulting service, a security concept, or implementing specific security measures.

The entirety of all projects and their deliverables constitute the so-called project portfolio. The following graphic depicts an idealized project portfolio where projects are listed row-wise, while deliverables are presented in columns:

In project management, it is important to strike a good balance within the classic project management triangle: outcome (represented by deliverables), time, and resources. Often, only trade-offs are possible. Optimizing one aspect typically comes at the expense of others. For instance, more outcome will generally take longer or makes the project more expensive.

However, project portfolio management considers the entirety of all projects. It is therefore useful to focus on the number of projects completed within a given period. This motivates the concept of a project pipeline.

Given a fixed pipeline’s diameter, an excessive number of projects, projects that are too large, or an abundance of large projects hinder an effective flow or even clog the pipeline.

Challenges

Starting in 2018, the IT department of the Bundesrechnungshof initiated a comprehensive modernization of its IT systems. Since then, we have successfully completed over 450 projects. From these efforts, we have derived some key challenges and outlined their potential impacts on the project portfolio:

• Increasing pace of innovation: Fortunately, technical possibilities are expanding at ever shorter intervals. However, this acceleration intensifies the pressure on IT departments to unlock these possibilities for users and provide support in their utilization. Examples include generative AI, text mining, business intelligence, and process automation. Challenge: The number of projects increases.
• Increasing compliance requirements: An increasing legal regulation of administrative actions combined with growing technical regulations increases the complexity of each project. Examples include AI Act, GDPR, IT security, procurement regulations, and legal stakeholders within the organization. Challenge: Projects become more complex and the number of deliverables increase.
• Digital sovereignty: As part of the public sector, we aim to become independent of individual manufacturers and nations. At the same time, we are expected to procure through central framework contracts. However, these framework contracts often pertain to manufacturers from whom we seek independence. Challenge: Uncertainty in decision-making due to conflicting objectives. These lead to longer project timelines or postponed projects despite their urgency.

If unmanaged, these challenges lead to a project portfolio becoming simultaneously "longer" and "broader". In practice, this results in unresolved conflicts of objectives, and the number of successfully completed projects per time decreases. An excessive number of overly large projects further amplifies this effect. The perceived "too little progress" has its root cause in a clogged project pipeline.

Solution: Complexity Reduction

To address these challenges, it is necessary to actively manage the project portfolio. The primary goal of the IT department of the Bundesrechnungshof is to achieve sufficiently smooth project flow. To this end, we aim to pursue only the deliverables of a project that are truly necessary at any given time. At the same time, we seek to focus exclusively on those projects that promise the greatest strategic benefit during a specific period. This is achieved primarily through the following measures:

• Horizontal prioritization: Which deliverables of each project must be accomplished at a given time? What is the smallest possible yet meaningful project? Options: Removing deliverables or postponing them to later projects.
• Vertical prioritization: Which projects in the project portfolio must be implemented at a fixed point in time? What is the smallest feasible number of projects needed to achieve strategic goals? How are these projects prioritized? Options: Removing or postponing projects.

The result of these measures is a reduced and prioritized project portfolio at a specific point in time, structured as follows:

This optimized project portfolio serves as a model of our strategic objectives at a fixed point in time. It is intended to help reduce complexity and enable quick decision-making. This model helps to avoid the aforementioned conflicts of objectives or mitigate them through prioritization. With approximately 70 simultaneous projects per time, the IT department of the Bundesrechnungshof has achieved a manageable number of projects.

Beyond optimization in the sense described above, we use the project portfolio to answer questions in a fact-based manner - e.g. in financial controlling, for IT infrastructure, as well as for financial planning.

Nevertheless, the IT department of the Bundesrechnungshof sees further potential and regards the improvement of the project portfolio to be an ongoing and worthwhile task.